While I don't disagree with the argument that many high-income individuals are over-leveraged, the analysis of the personal savings rate is flawed. The personal savings rate excludes, among other things, capital gains, which makes it pretty much useless when looking at the wealthiest Americans. Warren Buffet most likely has a negative personal savings rate and is neither over-leveraged nor a spendthrift (at least relative to his net worth).

12:22 pm June 21, 2011

TiredOfFlippingTheBill wrote :

These people are high earners -- they are not wealthy. There is a BIG difference. Dr. Stanley called them ISA -- Income Statement Affluent. They need to be BSA -- Balance Statement Affluent. We have some friends who are this way. They make huge salaries, drive expansive cars, and send their children to private school. Listening to them talk, they are 2 months away from default if either the hubby or wife lose their high paying jobs. We couldn't live that way (so we don't).

12:28 pm June 21, 2011

CP wrote :

Make that Buffett with 2 "t"s. Sorry, Warren...

12:29 pm June 21, 2011

Keith Whitaker wrote :

High-earning professionals are much more akin to the middle-class in their spending and saving than they are to people who have created wealth not through their own earning but through monetizing the future earnings of a business. And the importance of employee debt to employers is nothing new. In the early 20th century, the advocates of Taylorism found, to their chagrin, that they could not greatly improve productivity simply by measuring worker inputs and then making the production process more efficient. The workers just worked less in order to earn the same wage. The employers' savior was the installment purchase plan and the unleased desire for "the good life" that would come with debt. Workers bought the new washing machines, ovens, cars, etc. with debt and then gladly (or not so gladly) slaved away to make the payments. The doctors, lawyers, and investment bankers you cite are living the same dream (or nightmare) as the line workers and salesmen of yesteryear.

While the "average" income of the top 5% is over $342,000, that average (the mean) is skewed by the small number of very high earners. I would guess that the median number is lower, at around $200,000, and that the threshold to enter the top 5% is even lower, at around $100,000.

But their savings rate is still surprisingly low. To paraphrase PT Barnum, a fool and 98.6% of his annual income are soon parted.

12:43 pm June 21, 2011

Grammer Fascist wrote :

I think you mean that the recession has barely "affected" the highly leveraged lifestyles of the wealthy.

12:46 pm June 21, 2011

Bobby Kennedy wrote :

First - what a butterface. WOW, is she unattractive. Not quite hideous, but certainly unattractive.
Second - In debt to her eyeballs.
3rd - and a shameless lumpy housefrau too!

What a catch.

12:50 pm June 21, 2011

Pay me now wrote :

She looks exactly like Paul Stanley of Kiss.

12:57 pm June 21, 2011

Hey wrote :

They are not able to save as much because they are taxed at much higher rate, don't qualify for any government gimmies etc.

1:00 pm June 21, 2011

MC wrote :

It doesn't matter how much you make, it matters how much you spend...

1:02 pm June 21, 2011

Scotty wrote :

Moral of the artical is:

They spend money on items they don't need
With money they don't have
To impress people they don't know

1:12 pm June 21, 2011

Helen wrote :

The topic here is greed, not wealth.

1:28 pm June 21, 2011

Robert Laughing wrote :

Many of those doctors and lawyers etc, running their own businesses, have UNBELIEVABLY HIGH operational costs for insurance, office, multi staff, etc + the 13.5% self-employment Soc Security tax....it's no cakewalk, as many also have kids in private schools (effectively paying 2x for 1 education) + have the piano, ballet, hockey, swimming lessons/meets! I know of two doctors, and they don't have much 'FUN!' Just another perspective, on 'ALL THOSE Fat Cats, earning $300k+.'

1:39 pm June 21, 2011

John Smith wrote :

If money doesn't buy you happiness...then you don't know how to spend it correctly!

1:50 pm June 21, 2011

justbackfromcabo wrote :

It would be very interesting to correlate the leverage to some measure of celebrity (or to a lesser extent, social visibility). Many of the wealthy I know exert effort to constraint their spendiong to some fraction of their anticpated gains, but then those folks also tend to be very low key. Not a Ferrari amongst them.

1:55 pm June 21, 2011

thorn young wrote :

Someone please help me understand why anyone would ever save.The government proves time and time again that if you save you are the one taxed to support those that don't save. Savings only means you are means tested in the near term, and robbed in the long term to pay for promises the gonvernment is making today.

One might cynically ask what is left to save for? Food, done with 41 million on food stamps; housing, done with all the mortgage protection and now $1 billion in mortgage relief; education, done, free through high school and now with student loans guarnateed free is just a walk away; health care, done thanks to Obamacare; retirement, done, either social social security or take a page from Greece's streets. I bet there are more examples of what we dont need to save for anymore.

What our liberal friends may realize one day too late is that taxing production of the few to fund standard of livings of the masses only averages the standard of living for society. We might consider lower the burden on prodiction and, like 1994 Welfare Reform, lower the hammock on entitlements.

In the past, certain traits, accents, backgrounds, and activities signified wealth and status resulting in two outcomes:
1. if you weren't elite, spending didn't materially enhance your status.
2. if you were elite, you could live modestly since your status was more secure.

In almost any "social register" city, the biggest houses were built by people with funny German, Dutch, or Irish last names. The English establishment Mayflower elite lived a more modest lifestyle.

Since its not clear who is elite anymore, it's important the elite spend to establish and publicize their status. They have to spend to maintain their status, whether they have the money or not.

Veblen argues conspicuous leisure (golf, reading, accent, cooking) are effective in intimate settings, but conspicuous consumption is more effective in anonymous settings amongst strangers or in a big city.

If Jay-Z goes to midtown, some people might not know who he is, or why he's important. However, if he drives a $200,000 car, the doorman will know he's important. Likewise, the real housewives; noone will confuse them with Barbara Bush.

2:03 pm June 21, 2011

Anonymous wrote :

I must have missed the part of the article with information on how leveraged the wealthy are. Low savings rate does not necessarily mean they are highly leveraged. They may be highly leveraged but we don't have any leverage data in the article to go by. Feels like a non-article.

2:05 pm June 21, 2011

Rich wrote :

Exactly why is this skank in your paper?

2:09 pm June 21, 2011

Is the math correct? wrote :

1.4% of $342,000 is just $4788 of savings. Is that per year, or total savings in a bank account? is that just earned income or does it include capital gains? While the article is interesting, more interesting would be a deeper study of asset allocation of "savings" (for instance 2nd homes, rental apartments, etc).

Perhaps investment retirements should not be included because they should be considered unavailable if you lose the job (i.e. its not the right backup strategy for paying the mortgage).

Taken at face value, $4788 of savings is tiny compared to someone earning $342,000 a year, so maybe the journalist can give some clarity? Or, maybe people are comfortable living to hand to mouth with no fallback position, but that would be surprising.

2:12 pm June 21, 2011

Whoa Nelly wrote :

Interesting story - but who's the dude in the picture?

2:18 pm June 21, 2011

Paul Stanley wrote :

Like someone pointed out earlier, the picture is Kiss singer Paul Stanley.

2:20 pm June 21, 2011

Rich vs Poor wrote :

It is a very simple calculation. If you RECEIVE more interest than you PAY, then you are rich. If you have a mortgage, then you are poor.

2:29 pm June 21, 2011

My Eyes!! wrote :

I can't stand to look at this woman's stupid face! I can not for the life of me understand why anyone would wait on line to get an autograph from this woman.

2:34 pm June 21, 2011

justbackfromcabo wrote :

Totally off subject, but I had to respond to that mortgage comment... Not when you can get a jumbo at 4.75%, the dollar is headed into the tank, and most $1M + homes are 30% to 40% off peak value (with a lower rate of foreclosure than the market in general) and sitting on market for 18 months or more. Even if the politicos get off their ass and axe the mortgage interest deduction (aka, home buyer's subsidy), a 30 year fixed jumbo is an excellent long term investment. If you're on the market for a home, I believe the contrarian move right now is to get a conservatively leveraged loan on your next home. PS. I am not a mortgage broker.

2:37 pm June 21, 2011

Old Indie wrote :

Better be nice to the rich. If they decide to cut back or, worst, move their wealth to another country, we are in trouble. Oh, and they (1/2%) also pay the most in taxes (50% in California).

The 'trash the rich' mentality in the US is exactly the WRONG thing when so many jobs depend on high end sales and services. The average American does not support tilesetters, landscapers, or accountants. The rich do.

2:51 pm June 21, 2011

Ludwig wrote :

Old Indie, we all should be nice to the non-rich since you're one of them.

2:53 pm June 21, 2011

Amy wrote :

What's with the dude's hair?

2:55 pm June 21, 2011

Rich Trash wrote :

Does not matter if you borrow $10 without a means to repay and squander it or if you borrow $100K or even Billions (like the Greeks) ---it is still theft by fraud.

2:56 pm June 21, 2011

Anonymous wrote :

So, according to the story, employers encourage spending among their highly paid employees in order to keep them desperate ('Golden Handcuffs')? Am I missing somthing form this story?

2:59 pm June 21, 2011

I'm in total agreement. wrote :

KISS Rocks!

3:22 pm June 21, 2011

Orange drink and chips wrote :

dang, she is nasty that broad from real hags of NJ. Miss Jackson if youre nasty!

3:24 pm June 21, 2011

Anonymous wrote :

Robert - where did you get that data on savings rates in different income brackets? Sometimes savings rate is measured in an inane way that would (e.g.) exclude investment income, which would certainly distort the numbers at the upper end of the income spectrum.

3:30 pm June 21, 2011

Tom wrote :

I think you miss all the points. When you make $25000 per month, $10,000 debt isn't really a problem-you can pay it off in 3 months or so because you have more discretionary income. When you save 1.4% of $300,000 you save $4200 per year. When you make $3333 a month ($40,000 a year), 8% savings is $3200 per year and $10000 debt takes a long time to pay off because you need nearly all of it for normal expenses. The wealthy accumulate savings, while the poor have to dip into them often. Highly paid people stay at a job longer because there are fewer comparable jobs out there.

3:50 pm June 21, 2011

George wrote :

Yup, raise the income level on the social security payroll tax so they can better use their discretionary income.

4:13 pm June 21, 2011

Billybob wrote :

The other corollary to this is that at least for professionals, doctors and lawyers (partner level that is), if they get "fired" from their job they have some security at finding a second. In contrast to professions that are unemployable over the age of 40, these professionals are more experienced with age and thus make them more attractive for employment. Thus, if you don't have to worry about your job being exported to India or face age limits on employment.. why not leverage to the hilt? They can actually work into retirement if they so desire.

4:15 pm June 21, 2011

netSlave wrote :

Very good and many funny (but witty) comments here.

4:22 pm June 21, 2011

Steve wrote :

What an odd way to end this story, with a question to your readers, asking them for their *opinion* on a *fact* that you just reported on! What does it matter whether I *think* that the wealthy lead a leveraged life or not? You just reported that they *do*. Please don't turn the WSJ into the Huffington Post or Entertainment Weekly.

4:39 pm June 21, 2011

JD wrote :

Interesting story, but the savings rate comparison is useless. Tom said it all, below.

4:54 pm June 21, 2011

Rich vs Poor wrote :

justbackfromcabo - you are correct IF, and that's a BIG IF, one pays 4.75% for a $500,000 mortgage as an example, then finds a way to make more than that in interest income from that $500,000 cash that he decided not to use to buy a house. Otherwise, one is poor if they are paying interest... even if for buying a house.

Do you think Bill Gates pays interest on a mortgage? Of course not, even though it is a "good" investment option. He certainly receives more than he pays....hence, he is rich.

6:16 pm June 21, 2011

Peter Bradshaw wrote :

Excellent point TOFTB I hate debt guess that's why I am not rich:) Debt should be for investment purposes only, to expand a business or to gain a marketable skill not just certification there is a bid difference as many unemployable college graduates will tell you.

6:16 pm June 21, 2011

DebtFree wrote :

The rich who borrow to support their debt and lifestyle are not "rich" any longer. This is all going to come crashing down. Let us how it does not result in violence.

6:21 pm June 21, 2011

J wrote :

These stats can't be correct. They surely do not count retirement savings, the value of assets, etc. If someone is already rich living off of a municipal bond portfolio yielding $300,000, they may very well spend everything they receive as "income," but "income" would not count the $5 million sitting in an IRA that is growing, a paid-up house, the value of non-income paying investments, etc. Likewise, many professionals max their retirement plan contributions and are in reality saving a decent 10% to 20% of their income. But because the money going into the retirement plan may not be counted as "income" neither the income nor the savings show up in these statistics.

I don't dispute that there are a large number of high earners who spend every penny they make, but I don't think its as big as these bogus statistics make it seem.

6:24 pm June 21, 2011

Lowbrow WSJ wrote :

The Wealth Report? These are not wealthy people. Just another example of the declining demographix that the WSJ now caters to. Wealthy people don't make $342,000 a yea, don't save 1.8%, and don't live paycheck to paychecks

6:30 pm June 21, 2011

B wrote :

Great article, wonderful, bla bla bla...get a life...

7:37 pm June 21, 2011

I'm wealthy?? wrote :

Are you kidding me, the difference between taking home 400,000$ and 200,000$ is not that great when you factor in the taxes, the lost deductions etc etc. According to this column I should be "wealthy". I live in 1800 sq foot home with a postage size lawn in rural KY and I don't drink, gamble, own a boat or take expensive vacations. I drive a 5 year old minivan. And I am still lucky to save maybe 25,000$ a year towards my retirement.

7:43 pm June 21, 2011

cynicalbabe wrote :

These gals have no market value in the game of life-too fat,homely,hideous grammar,wrong skin tone(yes,let's live in reality)....save your money while you're young and can earn more,older people have less opportunities to replenish their savings.....Over forty is tantamount to being doomed to Walmart-with some exceptions....Life is not fair-and never was-except to some deluded academic feminists......The thin ,pretty,and young will alwaysw prevail.....

9:56 pm June 21, 2011

TiredOfFlippingTheBill wrote :

Most people don't have the stamina to become wealthy. You have to start the process and keep after it for 20, 30, and more years. It is NOT something you can do for 15 minutes a year -- which is what one publication I read said that the average person spends saving, investing, and managing their retirement. It is no wonder that the country has the debt level it has -- congress suffers from the same short attention span.

12:24 am June 22, 2011

DumbDumb wrote :

The people in this article are not rich and they never will be. The Millionaire Next Door is the true rich guy. He/She started saving from day-one and still saving even though there no longer is a need to save.

2:49 am June 22, 2011

Michael D. wrote :

The high earners have been told that the the path to true wealth is to borrow as much cheap money as you can and then leverage yourself to the max to and earn more than the interest through investments. This is repeated again and again through advice telling people "not to pay off their homes for tax reasons plus you'll earn more than the interest in investments." The problem is that a lot of these people only really follow the first part of this investment strategy, which is borrow as much cheap money as you can, and leave out the aggressive investment strategy that must accompany it. The other problems even for those that do follow through with the strategy is that 1) they are borrowing cheap money in market where asset prices reflect the ability to borrow cheap money (higher prices) and 2) this is really a better strategy for disposable income unless you are ready to bet your own family home and family livelihood on your investments. Many lost everything when the home value dipped on the home they bought when money was easy plus the stock market took a dive as they hit a road bump on their income.

2:49 am June 22, 2011

Reginald wrote :

I'm wealthy?? Do you have a cell phone or two? Health club membership, Cable TV, a morning cup of Joe at the local coffee house, lunch at a restaurant, dining out at night, golf or tennis club memberships, a lawn maintenance crews, housekeeper-nanny, go to movies? Cut out all this stuff----and it will add up BIG TIME. Brown bag it...make your own coffee...etc etc etc. 5 year old car? Warren Buffet has one 20 years old!

8:46 am June 22, 2011

loan officer wrote :

I'm still shaking my head over a guy I did a loan app for last week (loan is a no go). 67 years old, $60k in bank, no other savings or retirement accounts, $1 mill mortgage on his house, leveraged to the max (over max due to declining values) on his rental properties, lake home with 2 mortgages on it, florida home with 2 mortgages on it. His current bank is being bought out by a Canadian bank, and told him they will give him 1 year to go away. The subject matter was a 22 unit apt he built in 1969. That was 40 some years ago, and he owes almost as much as it's worth!!! He should have had it paid off by now. It was obvious he was borrowing to support his life style. I'm thinking (and my underwriter also said it), sell the house, the lake home, the Florida home, and move into your apt bldg. Then use any left over funds to pay down your commercial properties (only source of income other than $6k a year from social security).

I can't tell you the number of 'payment' strung out clients I've seen over the years. They think they can afford the payment due to low rates, but they keep going further into debt. It just blows me away.

9:49 am June 22, 2011

TiredOfFlippingTheBill wrote :

When you make a large income, your deductions start going away. Your personal exempts disappear on your tax bill. Your home mortgage can go away. You get to pay this wonderful gift called Alternative Minimum Tax (AMT). All of these items suck. You have to do very careful planning throughout the year if any of these happen to you, since all of a sudden you have a tax bill where you thought that you had a credit.

11:11 am June 22, 2011

$ wrote :

Real subject here: JEALOUSY

You cant regulate, or calculate away jealousy.

Everyone is still jealous of this spending.

Dont judge and dont Deny it.

3:37 pm June 22, 2011

Econoguy wrote :

If you're earning $300k you pay full boat for your kid's tuition, a third of which goes to subsidize someone else's kid. Backdoor taxes eliminate your deductions. If you work for yourself you pay both sides of the Social Security and Medicare tax. And you don't get to deduct health care or use a "cafeteria" plan, such as the one your employees enjoy. You pay the highest medicare premiums in retirement and 85% of Social Security is taxable. You pay an extra amount with your condo fee because there are low income units paying half their share. You've never seen a food stamp, welfare, unemployment or disability check. If you go into a nursing home you'll pay $300/day while they only get $100/day for the medicaid patient in the next bed. 51% of Americans pay no income tax, and you're jealous of them.

You could live in a second floor walkup apartment and drive a 1952 Studebaker, but you do want to enjoy your money. Still, you should save, and you do, realizing that when it comes time to collect Social Security, they're going to tell you to wait until your IRA balances run out.

The US taxes the top third of income earners more heavily than any other developed country except France. No one believes this, but its a fact. European countries and Canada tax consumption, heavily, which weighs on the lower and middle class much more heavily, so in spite of higher marginal rates the bottom 2/3rds pay more of the income tax than we do.

11:56 am June 23, 2011

Anonymous wrote :

My father grossed about $300,000 a year. He leveraged his wealth so much, he went bankrupt twice, lost our family home and couldn't put me through college. Now he's got $1,000,000 in debt and--despite the fact that he's still raking it in--will probably never have a cent to his name.

His corrupted lifestyle has been the bane of my existence.

5:59 pm June 23, 2011

Boraxo wrote :

Low savings rate figure is a bit suspect, I'd like to see the data.

From what I've observed, most people in this bracket are at least maxing out 401k (That's $32k for 2 working parents) which would be 10% of a hypothetical 300k. Add 529 plans (do those count as savings?) and the number goes higher. Also in silicon valley many get stock options which may effectively substitute as "savings" (one could argue that's a more risky "investment" though hard to say given the performance of real estate and the stock market over the last decade).

So I'd like to see the data before reaching the same conclusion.

10:14 am June 27, 2011

ChiTownEntreprenuer wrote :

Well, I admit I'm a little suprised to see a Top 5% of weathly only save 1.4%, but then again I'd figure some of them are making enough monthly residual income that maybe they feel they don't need to save. I once heard leverage can be like a loaded gun: it can protect you or it can kill you if you don't know what your doing. When your out there using leverage to have the high-end luxury goods rather than use it to build your wealth, I think that can be dangerous. I'm not saying don't have any fun and enjoy life; but just be smart.

4:39 pm June 27, 2011

TiredOfFlippingTheBill wrote :

To Anonymous 11:56 -- please put yourself through college. You are smart -- figure out a way. Go into the military and get an education. You will learn things in the military at age 20 that many 40 year old's don't know.

5:52 pm June 29, 2011

BradyWestwater wrote :

I suspect that the highly... suspect... 1.4% saving rate among the top 5% income earners in this is mainly a result of not counting investments in that 'savings' rate. But it might be further skewed if that rate is the average savings total of that entire group as opposed to the average savings rate of each the individuals in that group.

9:43 pm June 29, 2011

Gary H wrote :

One of my best reads was "The Millionaire Next Door", and was about how frugal they were, they didnt have new cars, or the best homes, often the same home for over 20 years. Also over 70% were self made, no silver spoon in their mouth. And it mentioned their siblings did not do so well, because they did not have to go through the lean years their parents went through to build their empire, thus, they were not as resourceful and more often than not could not keep the family nest egg going.

4:43 pm July 27, 2011

Shak wrote :

Duh. If you're making $300k, you don't need to save anything. You already have $1m+ in bank.

12:41 pm October 16, 2012

madmonq wrote :

Yes. There are those who are rich & others who are credit rich. It's the equivelent of a slip & fall artist thinking he or she is wealthy for his $2000 settlement. Only in America it's nationwide

7:26 pm February 12, 2014

Ezra Gillespi wrote :

I mentioned in my Rebbeca Van Dyck publish, I headed over for the new Facebook campus to photograph CSO (Chief Security Officer) Joe

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About The Wealth Report

The Wealth Report is a daily blog focused on the culture and economy of the wealthy. It is written by Robert Frank, a senior writer for the Wall Street Journal and author of the newly released book “THE HIGH-BETA RICH.”

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